SpaceX report, share unlock may sway Hong Kong, mainland China stocks as AI trade recovers

SpaceX's inaugural earnings report post-listing, coupled with a significant portion of shares becoming eligible for public trading, could potentially influence the strength of the recovering artificial intelligence sector. This development has propelled the S&P 500 toward its all-time high and contributed to Hong Kong equities outperforming the market.

The company's first set of earnings will be closely monitored, as SpaceX is seen as a benchmark for investors' appetite to back capital-intensive technology ventures. The financial report is anticipated to be released after the market closes on Tuesday, US time. Two days later, another critical test will unfold when the trading restrictions on a portion of SpaceX's initial public offering (IPO) shares lift, paving the way for one of the most substantial stock unlocks in the global capital markets.

The initial lock-up expiration is projected to more than double the number of freely traded shares, potentially pressuring a stock that has already slipped below its IPO price. This event may carry more weight than the quarterly earnings themselves, as it introduces a considerable new supply into a stock that has experienced a sharp decline from its post-IPO peak.

SpaceX, valued at US$1.5 trillion, is positioned alongside the tech industry's so-called "Magnificent Seven," comprising Nvidia, Microsoft, Apple, Alphabet, Amazon.com, Meta Platforms, and Tesla. The company's size positions it to sway sentiment within the AI sector. The repercussions of this unlock could extend beyond the US, impacting stocks in Hong Kong and mainland China, where investors often look to the US for guidance on trading strategies.

Stephen Innes, managing partner at SPI Asset Management, notes that while the direct earnings linkage between SpaceX and either Hong Kong or mainland Chinese equities is relatively modest, the sentiment and liquidity implications could have broader ramifications. A weak performance, cautious guidance, or substantial selling following the lock-up expiration may adversely affect the more speculative segments of the Chinese technology and commercial-space sectors, where valuations are still heavily influenced by future expectations rather than current earnings.

SpaceX is likely to have reported a loss of up to US$2.3 billion in the second quarter, as per consensus estimates. The company's rocket launches, AI businesses, and satellite internet arm, Starlink, were all forecasted to operate at a loss, with Starlink projected to generate profits from its approximately 10 million users. Upon expiration of the lock-up on Thursday, 911 million additional shares will become tradeable, augmenting the existing 640 million free-float shares.

This total could surge to 5.3 billion by the end of the year as more lock-ups expire. Following a 5.7% increase on Monday, SpaceX's stock is currently 15% below its IPO offer price. Innes emphasizes that the lock-up expiration may prove more consequential than the quarterly numbers, introducing a vast new supply into a stock that has already plummeted from its post-IPO peak.

He adds, "With Hong Kong also absorbing a substantial wave of its own lock-up expiries, any further deterioration in SpaceX could reinforce a broader de-risking trade."